The deepening euro zone debt crisis saw oil prices shave off around 20 percent from their 2012 highs as the supply/demand ratio narrowed, according to the latest International Energy Agency report.
The report said the springtime slump in oil markets accelerated in May, coinciding with the Greek election impasse – re-elections take place on June 17 – as the euro zone debt crisis took an even more sober turn with Spain having sought its own bailout for its banking system at the weekend.
However, it was not just Europe that saw downward pressure on oil prices; a slowdown in China and a better supply demand balance also helped to keep prices lower.
OPEC – Organization for Petroleum Exporting Countries – meets this week in Vienna and is being watched closely for any signs of a change in their production levels.
Excess supply from the biggest producers, notably Saudi Arabia, is a cause for concern for some who consider it pivotal to the slide in prices in recent weeks. The Saudi Oil minister Ali Al-Naimi said Wednesday he would not call for an increase in production.
According to the IEA, OPEC Crude output for May was estimated at 31.9 million barrels a day, around 1.4 million bpd higher than in December 2011 and almost 3 million bpd higher than a year ago.
However, the report concedes that it is less a case of "over-production" but a readjustment of tight year-end inventories and “is both a normal and welcome seasonal trend.” The IEA forecast demand growth of 820,000 bpd this year, resulting in average demand of 89.9 million bpd.
"A lower GDP sensitivity this month illustrates downside demand risks, but upside potential exists too, amid uncertainty over summer power sector oil demand and non?OECD stockpiling," the report said.